The war in the Ukraine has redefined the world order – not just politically but economically as well. Back in the days of the Cold War there was a divide between the capitalist come mixed economies of the West and the Communist or state-controlled industries of the Eastern nations dominated by the Soviet Union.
Now the same seems to be happening as the West finally realise that Russia controlled by the dictator Putin wants to conquer whole chunks of Europe. It’s led to schism not seen since the end of the Second World War in 1945. Russian has been isolated due to its aggression and war crimes as it attempts to blast Ukraine into submission. But to cut off the Russian economy comes at a price to British industry and here are some of the costs coming our way which could see many firms struggle and others go to the wall.
1 Oil and Diesel prices
Already filling up a van at a motorway service station has seen prices go over £1.60 a litre while nationally they are not far behind while supermarket diesel is around £1.80 and rising. Petrol is closer to £1.50 a litre but is set to rise as oil hits the $100 a barrel and continues to rise. Every single delivery and every single sales rep shooting off to see clients brings a hike in overheads – and prices are set to increase further with the average saloon or small van being filled up for just south of £100. The rises are not just to do with the war in Ukraine although that’s sent the international markets into a panic as Russia produces around 10% of the world’s black stuff. Meanwhile under pressure from the Government BP has offloaded its 20% stake in Rosneft the Russian oil giant owned by the state slashing its potential profits and potentially jobs ahead of a further price rise as margins are cut.
2 Gas prices
Heating your office or factory is an expensive business and it set to become more expensive with gas prices rising in some cases by almost a third. Last year around 20 energy suppliers went bust as the prices hit the price cap set by Ofgem meant they couldn’t make a profit and with no reserves were insolvent. With a major hike last year prices this year are anticipated to rise according to Energy UK by 50%. Hot weather in Asia – gas is used for air conditioning – and cold weather in Europe has increased demand but the Ukraine war Russia is effectively being frozen out as a supplier to much of Europe meaning most nations are scrambling around to find new suppliers in North Africa and the Middle east – sending up prices. We get about 5% from Russia so we shouldn’t be short of the stuff – but prices are hitting all time highs despite all that gas under the North Sea. These kind of rises mean an average small office with just a couple of rooms will see a monthly bill of close to £100 – potentially rising to £150 this year or £1,800 per annum.
3 Exports and Imports
In the great scheme of things exports to Russia are nothing like as much as they are to the EU. In 2020 we exported £2.1 billion and imported £19 billion in goods with 40% from energy and 11% from non-ferrous metal. Around 4,000 firms trade with Russian but now that figure could be cut drastically – whether its refitting super yachts or exporting luxury cars – trade is set to all but stop.
Already on the rise inflation is running above 5% and set to hit double digits potentially as oil, gas, diesel, food and just about everything else rises in prices – driven up by energy increases. That means your products or services need to rise in price if you are to keep up with inflation. In most cases passing on price rises may not be an option. Instead many in business look elsewhere to make savings. Salaries? Rent? Suppliers? It’s tricky – and will mean in reality inflation with hit the bottom line.
5 Interest rates
Spare a thought for the Russian consumer – they have interest rates now of 20% after the Rouble all but collapsed this week after the Western nations pulled the plug on many payment methods including the SWIFT scheme. The Bank of England is likely to hike rates in order to keep inflation under control. That means borrowing is more expensive and overdrafts gather increased costs. All of which hit business. The war may not cause interest rate rises but it is a factor in the Bank of England’s calculations. And that means businesses take a hit – as do consumers who have less cash to spend creating a spiral of stagflation.
Advice from ICSM
All of these factors mean it is more expensive to run a business. There are some basic decisions to make in order to stay solvent – and come out the other side when things improve as they will do.
1 Reduce costs with old fashioned insulation – draft excluders and insulating roof spaces – and turning down the heating and wearing a jacket indoors. Not popular with everyone in an office – but practical. Putting a tracker on company cars can prevent reps from taking the scenic route – shall we say. Cutting speeds by a few miles an hour on long journeys saves cash as does ensuring vans are not carrying unnecessary luggage.
2 If it’s a very small office then working from home can save a big cost – but for many this is not possible due to a lack of space. Many a business has started from a lock up or a garden shed – again no good for larger concerns although sharing space with a complementary business can work.
3 Sell off any surplus and hardly used kit and materials.
4 Consolidate working space for production to save money on rent and energy and if you own it lease or rent the extra room.
5 Check all you insurances, loans and utility bills and see if there is a cheaper supplier.
6 Try not to take on any new loans. If you have outstanding debts concentrate on paying them off first.
7 Shorten your payment terms for new customers to increase cash flow. Use ICSM’s micro debt service and our FREE legal letters to chase up long overdue payments. Most firms have many invoices that go unpaid and are written off. Don’t write them off as using ICSM you could be paid even if the invoices are years overdue.
8 Get tough with late payers – remember what happened with Carillion? They expected suppliers to wait up to 120 days to get paid – which meant when they went bust they lost four months of invoices. ICSM’s debt collection service brings in tens of thousands of pounds a year for members.
About ICSM Credit
ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel – while at the moment there’s a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach – ask for details from Paul.
For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.email@example.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.
To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.firstname.lastname@example.org
For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk